Thursday 9 February 2012 12.24 EST
First published on Thursday 9 February 2012 12.24 EST

Bad news for savers. Tough times ahead for pension funds. Precious little joy for everybody else. That was the subtext to the Bank of England's announcement on Thursday that it needed to conjure up a bit more money creation to steer the economy away from the rocks of a double-dip recession.

Clearly, Threadneedle Street believes 2012 is going to be a rotten year. It has doubts about whether the rally in the eurozone is for real. It knows that tight credit conditions are throttling private-sector growth. It senses that it will take time for falling inflation to end the squeeze on real incomes. And it is aware that the big public spending cuts are still to come.

As a result, what the Bank announced on Thursday was a damage-limitation exercise. Faced with what it called "headwinds", the Bank decided it had no alternative but to pump an additional £50bn into the economy over the next three months. That will take the total purchases of UK government bonds to £325bn, or about one third of the liquid gilts market.

This is the insurance policy against a messy Greek default that has knock-on effects across the rest of the single currency zone, depressed consumer spending, an investment strike by companies hoarding their cash, and the biggest programme of spending cuts in living memory. True, the recent surveys have painted a more positive picture but the Bank is worried it might be a suckers' rally. Next week's quarterly inflation report will flesh out the reasons for today's move, but is likely to show the economy flatlining this year and inflation dropping like a stone.

The Bank's decision, while not a surprise, is not without its risks. Inflation remains more than double the government's 2% inflation target, and while Threadneedle Street has sought to quantify the impact of quantitative easing, it does not – and cannot – know for sure what the inflationary implications of such a big monetary boost will be. The expectation is that inflation will fall like a stone this year, the result of a bombed-out economy and no repetition of last year's rise in commodity prices. As things stand, that looks a reasonable call.

Perhaps a more immediate concern is that QE is not really getting to the parts of the economy that need it, and, in its third incarnation, is subject to the law of diminishing returns. Ed Balls made the point that the Bank was doing its best to avert the risk of a fresh recession but could only do so much. At the very least, there is a case for looking at the mix between monetary and fiscal policy, so that borrowing costs and QE take less of the strain.

It might also be the time to think about QE more creatively, perhaps to fund a nationwide green new deal or a national investment bank. The fact that output is still 4% below its pre-recession peak, despite an unprecedented monetary boost since 2008, is an indication that QE has proved to be a blunt instrument.